Question

# Year A B 1 10% 9% 2 -15% 16% 3 14% -10% 4 13% -12% 5...

 Year A B 1 10% 9% 2 -15% 16% 3 14% -10% 4 13% -12% 5 10% 21% 6 13% 11% 7 -12% 14% 8 10% -10% 9 10% -12% 10 -19% 21%

What is the correlation and covariance between these two assets?

 A D = Return-Average Return D^D B D = Return-Average Return D^D D(A)*D(B) 0.1 0.066 0.004356 0.09 0.042 0.001764 0.002772 -0.15 -0.184 0.033856 0.16 0.112 0.012544 -0.02061 0.14 0.106 0.011236 -0.1 -0.148 0.021904 -0.01569 0.13 0.096 0.009216 -0.12 -0.168 0.028224 -0.01613 0.1 0.066 0.004356 0.21 0.162 0.026244 0.010692 0.13 0.096 0.009216 0.11 0.062 0.003844 0.005952 -0.12 -0.154 0.023716 0.14 0.092 0.008464 -0.01417 0.1 0.066 0.004356 -0.1 -0.148 0.021904 -0.00977 0.1 0.066 0.004356 -0.12 -0.168 0.028224 -0.01109 -0.19 -0.224 0.050176 0.21 0.162 0.026244 -0.03629 Sum = 0.34 0.15484 Sum = 0.48 0.17936 Sum = -0.10432 n = [Number of Observations] 10 10 n = [Number of Observations] 10 10 n = [Number of Observations] 10 Average Return = [Sum of Returns/n] 0.034 Variance = [Sum of D^D/n] 0.015484 Average Return = [Sum of Returns/n] 0.048 Variance = [Sum of D^D/n] 0.017936 Covariance = [Sum of D(A)*D(B)/n] -0.01043 Standard Deviation = [Square Root of Variance] 0.124435 Standard Deviation = [Square Root of Variance] 0.133925

Correlation = Covariance/(Std Dev of A*Std Dev of B) = -0.01043/(0.124435*0.133925) = -0.62586

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